Influencer Marketing & The Law

Influencer Marketing & The Law

Influencer marketing has proven to be a useful tool in the marketer’s tool chest. Billions of dollars are poured into this marketing channel every year, and all indications point to an increase in future spending. With the proliferation of influencers marketing a wide variety of products to consumers, there is an expansion in regulation and enforcement. In this discussion, we review some of the most common legal considerations that come into play relating to influencer marketing campaigns.

The convergence of technology and the popularity of social media has created a new dynamic. Now, anyone with a phone can broadcast their daily life and perspectives to millions around the world. Such capability for global reach was once reserved only for those with vast resources such as corporate media and TV conglomerates. Through the rapid proliferation of technology, this capability is now on offer to anyone. What has emerged from this reality is a variety of individuals, aptly referred to as influencers, that have garnered followings that range from a devoted couple of thousand to millions of fans. In turn, these audiences are monetized through advertising and strategic paid messaging campaigns. Brands are pouring billions of dollars into these influencer-based marketing channels, and that number is slated to continue increasing at a rapid pace.

There is a good reason for the payment of such large sums to influencers.

It works.

The effectiveness of such marketing strategies is due to a variety of reasons, but there are two core drivers. First, influencers frequently have very engaged and loyal audiences who consider recommendations that influencers make for products and services quite earnestly. Also, the nature of promotion by influencers, whether it takes place on social media or a website, is native. Native campaigns refer to advertising that resembles the content that an audience is primarily interested in consuming. Campaigns that utilize native-style content has been shown to perform better than advertising that disrupts content consumption. A great example of such disruptive advertising would be commercials shown on TV that interrupt a show.

Disclosure Required

Based on the stellar performance of native style advertising such as those on offer from influencers, an increasing flow of brands of all shapes and sizes is shifting spending toward this channel. With that said, because sponsored content is native and often blends into non-sponsored content, consumers are at times unaware of when an influencer is recommending an offering because of honest opinion or based on a paid engagement. As the line continues to blur between advertising and bona fide content, the Federal Trade Commission, tasked with regulating “unfair or deceptive acts or practices” under Section 5 of the FTC Act, has been undertaking enforcement actions at an accelerating pace.

As put forth by the FTC, the general rule for advertising via influencers or other native-style content is that clear disclosure is required to protect potential customers from deception. There are concerns, especially on the part of brands and influencers, that such transparency diminishes the performance potential of campaigns. While the verdict on the extent of any harm from disclosure is still out, there are ways to mitigate negative impact while still being compliant with best practices in line with FTC guidelines. There is also a guide from November 2019 courtesy of FTC that is specific to social media influencers.

Periodic Review & Changes To Endorsement Guides

As part of its regular periodic review of its rules and guidance, the FTC is seeking public comment as to whether to make changes to its Endorsement Guides. The Guides were most recently revised in 2009. Since that time, digital marketing with heavy reliance on endorsements, such as through influencers, has seen massive growth. The FTC hopes that public comment will help guide changes to the Guides that align with the highly dynamic and shifting marketing landscape. 

FTC Commissioner Rohit Chopra issued a separate statement indicating the direction he would like the FTC to take. Commissioner Chopra calls for enforcement actions against advertisers who do not follow the guidelines as opposed to small influencers. Chopra also expressed concern over the FTC’s reliance on “no-money, no-fault” consent orders that he feels may not have the desired deterrent effect. 

Temptation For Fraud

Influencer marketing is a multi-billion dollar market, and by all predictions, it is slated to continue its meteoric growth over the coming years. With the vast sums offered to influencers who bring substantial followings, the temptation to perpetrate various fraudulent practices and engagement inflation tactics has grown. The pervasiveness of a variety of these dubious practices has seen increasing focus lately. The New York Times ran an extensive investigation into the underground world of purchased engagement by influencers to inflate their value to brands and thereby collect more considerable influencer fees. Such matters are cautionary tales for both businesses and influencers alike and stress the need for integrity and transparency in this dynamic area of marketing.

Successful Brand Partnerships Have Clarity

While on the subject of influencer marketing, it is important to discuss issues relating to partnerships that may sour for a variety of reasons. The most crucial part of any successful brand-influencer collaboration is a well-drafted and explicit contractual agreement. A common area of potential conflict occurs when there are unbalanced expectations. Generally, this takes the form of a brand expecting a certain amount of promotion, and the influencer performs below expectations. Therefore, having the terms relating to the specifics of exactly what the engagement constitutes will go a long way toward avoiding potential disagreements. Details may include the number of posts and any performance benchmarks that must be met.

User-Generated Content (UGC)

A significant component of social media is composed of user-generated content (UGC). From a marketing perspective, such content is attractive since it affords so many different potential use cases. At the same time, numerous pitfalls are present concerning the use of such content. The most typical area of contention in this sphere relates to copyright. Therefore, it is vital to ensure that before employing UGC, there is clearance as to who owns the copyright. Further, it is essential to ensure that the actual copyright holder provides a license to include the intended use.

Warnings From The FTC: “Blanketing Industry” With Notice Of Penalty Letters

The U.S. Federal Trade Commission (FTC), on October 13, 2021, published a post on its website concerning more than 700 Notice of Penalty Offenses it sent to companies that may have been engaging in practices, not in line with the FTC’s guidance and the law. In the FTC’s own words, it “is blanketing industry with a clear message that, if they use endorsements to deceive consumers, the FTC will be ready to hold them responsible with every tool at its disposal.” The potential violations include using “fake reviews and other forms of deceptive endorsements” to “cheat consumers and undercut honest businesses.” The FTC further warned and stated that companies “could incur significant civil penalties—up to $43,792 per violation—if they use endorsements in ways that run counter to prior FTC administrative cases.” The FTC also further linked to their endorsement resources for companies seeking guidance as it relates to compliance. 

On October 26, 2021, and following up on the Notice of Penalty Offenses concerning endorsements, the FTC sent Notices to “more than 1,100 businesses that pitch money-making ventures” that if “they deceive or mislead consumers about potential earnings, the FTC won’t hesitate to use its authority to target them with large civil penalties.”

Of note, these Notice of Penalty Offenses come from the FTC’s recent revival of its use of Penalty Offense Authority

The SEC Is In “The Influencer Fray” Too

The FTC and state attorneys general are not the only regulators conducting enforcement in the influencer space. For example, in the context of securities offerings, the Securities Exchange Commission (SEC) conducts regulatory enforcement too. For example, in October 2022, Kim Kardashian agreed to a $1.26 million settlement with the SEC over her endorsement of EthereumMax in 2021. The SEC alleged that Kardashian got $250,000 in return for an Instagram promotion, without properly disclosing the payment thereby violating the anti-touting provision of federal securities laws. Such celebrity influencer campaigns in the purview of the SEC are of a particular enforcement focus.